Despite Recovery, US Wages Lagging

By
David R. Francis /
September 2, 1994

EACH year, Lawrence Mishel, an economist with the Economic Policy Institute in Washington, uses Labor Day as an opportunity to review the status of working people in the United States. In a new book, he paints an unsatisfactory picture in 1994. The standard of living for the majority of Americans has worsened since the end of the 1970s, despite 3 1/2 years of economic recovery and a resulting decline in unemployment:

* Median wages (as many workers earning more as earning less) fell 2.6 percent after inflation between 1989 and 1993.

New groups of workers joined that trend in this decade. For example, wages of male college-educated workers fell nearly 5 percent. In the 1989-93 period, wages of those starting work declined 7.8 percent for high school graduates and 6.1 percent for college-educated workers in entry-level jobs.

* The 1980s trend of growing income inequality and a squeeze on the incomes of the middle class shows signs of continuing in the 1990s. Data to be released by the Census Bureau in a few weeks will likely show a ``slight uptick'' in median family income in 1993, but median incomes will still be at least $1,500 below their 1989 level prior to the last recession.

Mishel calculates that median family incomes will still be behind the 1989 level by about $700 this year. But next year, the gap should close.

* In the 1980s, families compensated for declining individual wages by having more members (usually wives) work for pay and by working longer hours. That trend may be reaching its maximum capacity.

As a result, Mr. Mishel notes in a book coauthored with Jared Bernstein, ``The State of Working America, 1994-95,'' that most families headed by someone born after 1945 ``will not achieve the same incomes in middle age as did preceding generations.'' (This biennial book will be available in December, updated with the new Census data.)

* The Clinton tax package of 1993 restored some progressivity to the federal tax code by taxing the rich more and helping the poor with a tax credit. Nonetheless, adding up tax shifts since 1977, the wealthiest 1 percent of families will still be ahead by $15,674 in their tax burden in 1995.

Poverty rates remain persistently high (14.5 percent in 1992), despite the recovery. Mishel and Mr. Bernstein do not expect poverty to fall below its 1989 level of 12.8 percent for several more years. Indeed, they predict growing wage inequality.

* Child poverty grew among all races between 1979 and 1992. By 1992, 1 of 5 children was poor. For blacks under the age of 6, 53.5 percent were poor.

* Women with college or professional degrees have enjoyed real wage gains in the early 1990s. The wage gap between men and women has closed further, but about 70 percent of this closure is due to the weakening of men's wages.

In their book, Mishel and Bernstein avoid proposing government-policy changes aimed at improving the wage picture. But in a telephone interview, Mishel offered several policy suggestions:

1. The Federal Reserve should not be so quick to slow the recovery. If unemployment was allowed to drop to 5.5 percent from its 6.1 percent level in August, more employers would have to offer temporary and part-time workers full-time staff jobs. College graduates, now driving cabs or doing other work unsuited to their skills, would more likely be able to shift to better jobs.

Mishel says he is suspicious that the ``soft landing'' desired by the Fed for the economy will turn into a recession.

2. Congress should boost the minimum wage by $1.50 an hour to get it back in real terms to its 1979 level. Recent studies indicate few jobs will be lost.

3. Congress should make it easier for the 30 percent of workers without union representation but who would like to overcome management ``retaliation and coercion'' and join a union.

Asked why Americans have been relatively peaceful about declining wages, Mishel responds: ``They did throw out the Republicans. But people in this country are less likely to assume that government has a responsibility for affecting these trends.''